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FPI limit in corporate bonds enhanced to 15% from 9% for FY21; FAR initiated for investment in G-Secs by non-residents

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On March 30, 2020, the Reserve Bank of India (RBI) has increased the foreign portfolio investment (FPI) limit in corporate bonds to 15% of outstanding stock for FY 2020-21 from 9%to strengthen the segment of the corporate bonds.The limit has been increased under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999). Importantly, this move was proposed by Union finance minister Nirmala Sitharaman during her FY20-21 budget speech.Foreign portfolio investment

  • Currently, an investor can invest Rs 3.17 lakh crore in Indian corporate bonds through FPI but with this hike investor can hold Rs 4.29 lakh crore of corporate bonds for the half year ended September 2020, and Rs 5.41 lakh crore for the half year ending March 2021.

RBI enabled FAR for investment by non-residents in G-Secs
Apart from raising FPI limit in corporate bonds, RBI has also enabled a Fully Accessible Route (FAR) for investment by non-residents in government securities.

All new issuances of government securities of 5-year, 10-year and 30-year tenors from the FY20-21, will be eligible for investment under the FAR.

  • The limits for FPI investment in Central Government securities (G-secs) and State Development Loans (SDLs) for FY 2020-21, separately.
  • This scheme shall operate along with the two existing routes, viz., the Medium Term Framework (MTF) and the Voluntary Retention Route (VRR),” the RBI said.

Following table showing the current limit for FPI in G-secs and SDLs

[su_table]

Category G-Sec General G-Sec Long Term SDL General SDL Long Term
FPI(Crore) 2,46,100

 

1,15,100

 

61,200

 

7,100

 

[/su_table]

What is FPI?
It is an investment by non-residents in Indian securities including shares, government bonds, corporate bonds, convertible securities, infrastructure securities etc. It should be noted that FPI does not provide direct control over the assets or the businesses.